IIF Authors

Status: Will be live at 06/12/2020 11:04

IIF Response to EU Review of the Non-Financial Reporting Directive

On June 11, the IIF submitted a high-level response to the European Commission’s public consultation on the revision of the European Union (EU) Non-Financial Reporting Directive (NFRD). The comments in this letter have been informed by discussions of the IIF Sustainable Finance Working Group (SFWG) and draw on a recent IIF paper on Building a Global ESG Disclosure Framework: a Path Forward (June 10). One of the IIF’s key recommendations in that paper is that steps should be taken to develop a harmonized cross-sectoral framework for ESG disclosure across jurisdictions.

From a market perspective, we strongly believe that sustainable finance needs a harmonized and sound policy and regulatory framework that enhances transparency. A consistent framework can enable improved financial decision-making, support market development, protect consumers, and ultimately enable tangible sustainability outcomes in the real economy. Clear, consistent, and robust reporting and disclosure of information pertaining to Environmental, Social and Governance (ESG) factors is an essential prerequisite for effective assessment of and action on sustainability risks and opportunities by corporates and financial institutions.

However, progress towards more effective ESG disclosures has been constrained by inconsistencies in underlying disclosure frameworks and methodologies. We consider efforts at the global level to strengthen alignment in disclosure requirements for sustainability-related information across jurisdictions to be of paramount importance. The starting point for this effort should be the current market-driven voluntary frameworks and disclosure practices.

In recent years, Europe has been the epicenter of development around disclosure expectations for corporates and financial institutions, particularly due to the adoption of the EU NFRD. 

Regulatory processes currently underway at the EU-level are likely to result in both a broadening and deepening of disclosure obligations in terms of sustainability issues considered, materiality perspectives and granularity. The implementation of multiple instruments with overlapping objectives may create confusion. Furthermore, the timing and sequencing of implementation of new disclosure measures, including those requiring financial institutions to gather new types of data from corporates that is not currently disclosed in a consistent manner, may require reflection and further coordination. We believe that any broadening and deepening of disclosures by financial institutions will necessitate similarly detailed disclosures from corporate counterparties, considering the currently uneven comprehensiveness and quality of corporate disclosures.

This consultation represents an important opportunity to streamline and harmonize the evolving EU regime for disclosures of ESG information by financial institutions and corporates in Europe and beyond. The IIF believes that the EU authorities can play an important role in escalating the discussion of non-financial reporting disclosures to the international level among the relevant standard setting authorities, thereby advancing consistency at the global level. Going forward, where authorities (such as the EU) are strengthening ESG reporting requirements or expectations, it will be important that these can adapt over time to reflect global alignment efforts.